All Forum Posts by: Llewelyn A.

@Selina Rothweiler

Getting your License must have some advantage for you or you wouldn't have spent the time, money and trouble to get it.

BUT.... you have a very independent streak! I absolutely relate to that as well!

What I did was to apply for a full Broker's License and was granted that license from all my personal transactions I have done over 21 years.

Thanks New York State!

I then started my own Brokerage since I can become a Principal Broker without having to hang my license anywhere.

I think your ultimate goal is to be your own Principal Broker. If that's the case, research exactly what are the requirements, including from your personal experience, and strategize how you will accomplish this, including having to work under the supervision of a Principal Broker for a time.

I will say that having my own Brokerage is a double edge sword. NYC Principal Brokers have to pay a LOT in fees and there are potentially 5 different MLS's.

The MLS with the most desirable Listings has a Principal Broker Dues of $1,650 and that doesn't even include the software to access the Data on their MLS!

I then need to subscribe to either of several specific software companies and for a single Broker, it's $150 per month.

And that's just the beginning of the costs!

HOWEVER, it's worth it for me as I just received a $40k buyer broker commission on the purchase of my own property.

If you research all the costs and compare it to what you potentially can save on your own purchases, plus commissions on any transactions that you worked on for clients, you can figure out whether or not it would be worth it for you.

@William Gan

Your initial inclination of reducing your cost of shelter by "Investing" in a property where you want to live is one of the holy grail rules I have for ANYONE in NYC, whether or not you have an opposition such as risk tolerance to Investing.

I have known MANY friend and Family members who never bought their homes, became priced out of the Market, many have simply moved to lower cost of living areas such as Florida.

The problem is that they can NEVER move back.

I really like giving real world examples.

My Aunt purchased her home close to Prospect Park in Windsor Terrace in 1994 for $140k.

Prices didn't go very far for a while, BUT.. I saw the trend of Park Slope Renters and Home Owners getting priced out of their neighborhood and coming to Windsor Terrace.

In the year 2000, I purchased the cookie cutter building next to my Aunt's building for about the same price, $140k.

By 2003, my Aunt was able to sell her building for $230k against my advice. She took her money and went to North Miami and bought several Condos.

During the Financial Crisis of 2008, her Miami fell almost 50%.

Fast forward to today. YES, her Condos are probably now worth about $400k.

BUT..... the building in Windsor Terrace Brookyn she sold for $230k is now worth $1.1 Million.

The Rents moved up from $500 per apt to almost $2k per apt as well.

When ever she visits NYC, she always asks me to take her to the same block, regreting her decision. I always have to tell her that she didn't really know and I won't mention that really, I certainly knew and it was quite obvious.

In those days, the amount of people who told me that Investing in "High" priced Brooklyn Properties was crazy.... that $140k for a small 2 family building was a BIG mistake, are the ones that cannot drive their Investment Vehicles the correct way, by looking through the windshield.

It's the same today. The same property, $1.1 Million, people cannot see it worth $2 Million in 2030.

That being said, NOT All properties in NYC will do well.

One of my former students bought a Condo in the Trump Buildings in the year 2008 for a 850 sqft Condo on the 16th Floor on 66th and Riverside for approximately $1 Million.

The problem here is that he bought it with a 10 year Tax Abatement AND the huge amount of construction that has been occuring in Hudson Yards, where about 6k of brand new units are coming online, many starting their tax abatements.

I helped him sell his Condo for just a little less than what he initially bought it for.

He MADE ZERO profit on his Manhattan Condo as a Buy and Hold for the best 10 years of holding Real Estate.

Even back then I told him that Tax Abatements do NOT help the Homeowner because Buyers look at the MONTHLY total Payments, not necessarily the price of the Condo.

So when his condo tax was ZERO, he didn't think of it with the full tax applied. So he "Overpaid" as the value in the future will be muted because of the full application of the Property tax which was $2k per month (YES... PER MONTH).

Those Tax Abatements really help the Developer, not the Homeowner.

There are really so many tricks like this that the unwary Buyer/Investor needs to really tread carefully around these landmines.

This is why I only buy 3 or 4 Family Units, all in Brooklyn.

To Contrast the former Student's example, in 2008, I bought a 4 Family Brownstone in Clinton Hill, Brooklyn for $1.2 Million. I gut renovated it for $400k, anticipating that the fast gentrification happening will bring wealthier and upscale tenants to Clinton Hill.

I was absolutely correct. Our apt rents went from $1,400 per apt to $3,000 per apt today.

The value of the building went from the $1.2 Million plus $400k in renovations for a total of $1.6 Million to being worth just around $3 Million today.

This was all during the same time as the student.

There are many lessons to learn here. You really need to study the markets as all Real Estate is Local, and in NYC, it could even be block by block as even a block can be it's own micro-city.

BUT.... if we are intelligent people and Investors, we can use our brains to come to very logical conclusions and buy wisely.

I would say look for the areas that have signs where there are at least 3 major things happening which if any one of those three things happen, you will do fine! If All three happens, then you will reap the rewards.

That's precisely why I bought in Clinton Hill, Bed-Stuy, Windsor Terrace, and even Ditmas Park.

I don't know Queens that well, but I can imagine because of Amazon's HQ, that would be one of the three things which will impact future values.

I would say find at least another 2 more things that can give a big impact in case Amazon isn't the big driver as it is suppose to be.

I do see Flatbush, particularly around Prospect Park, will do GREAT! Too much things are happening in that neighborhood.

I have heard about Sunnyside... I think that might be a great neighborhood, but I don't know much about it. So is Jackson Heights.

I still like Bed-Stuy and have just purchased a $1.5 Million 3 Family building a month ago.

One reason why I like Bed-Stuy is for at least 3 things (remember, have at least 3 things but these two things are BIG).

1) The L-Train will be shutting down. That will drive people into other places from Williamsburg/Greenpoint/Bushwick.

2) The G-Train is the only train that goes from LIC where Amazon's HQ2 will be located directly to Bed-Stuy AND Clinton Hill.

3) If Amazon's impact is really big, it is now more likely that the BQX (Brooklyn Queens Connector) project, a multi-Billion project, will be feasible.

There are also several other reasons... but I think you get the point.

NEVER pick a locality based on small things and always look for 3 BIG things. The bigger the better, the more the better! So if there are more bigger things happening in the future....... the better your chances are of success.

I also want you to re-think about using Cash on Cash Return.

Let's say you find an Investment that you can buy with $150k out of pocket and returns $15k annually for a 15% CoCR.

Notice that the CoCR calculation does not take into account the cost of the SALE of the Investment.

So, if you sell it in a year and the cost of the Sale is $15k or more....... you are LOSING money despite the fact that the CoCR looks great.

I would say you have to become skilled at using other more comprehensive calculations. The Best I would recommend is the Internal Rate of Return (IRR), which will include ALL of the costs, including the cost to sell the property.

Add this skill to your Investor Tool Chest and you will be a better informed Investor.

To weather a possible Crash, you will have to understand what will make your investment sink.

Obvious, if you can't find renters to pay all of your expenses and if you lose your job at the same time, you will sink like a rock.

This is exactly why I buy in areas where even in a crash, I can still find renters at approximately the same rent or just below current rents.

I also make sure use at worse an 80% LTV / 20% Down payment and do slightly more than just break even on cash flow. I can lose a little bit of cash flow when rents drop so have some leeway.

In low Interest Rate environments like it has been in the past 10 years or so, there is no reason not to use a 30 year fixed rate mortgage. You will love it once interest rates rise above 7% or even more. In the 80s, it went as high as 20%.

Over the years, your rent will skyrocket and then you don't really need to worry about this as your cash flow will skyrocket as well.

Sorry about being so long winded! I just wanted to give you some real examples of these concepts.

After reading this thread, I gathered the following:

GENERALLY (and not all Wholesalers)

1) Cloud the truth that they are the Buyers

2) Do not mention they are assigning contracts

3) Market the Property instead of Marketing the Contract

4) Believe God would approve of this behavior.

Did I get this right?

@Chris McHaney

@Justin Freeman

I'm REALLY curious why this is an advantaged structure.

As Justin explained it, the LLC is the tenant and there is a Lease Agreement between the LLC and the LandLord.

This allows the LLC to report rent collection from another tenant, which would actually be a SUB-TENANT as the LLC is collecting rent from the sub-tenant.

If the LLC does not own the Property, but is collecting rent, can the LLC claim that it is a rental business since it does not own the underlying property? Seems like the LLC is really a broker and subject to self-employment taxes.

HOWEVER, even if that is the case, the profits of the LLC would go fully to the Landlord, creating a full expense to the LLC for... RENT... so the LLC gets rent and then pays the same rent. SELF-DEALING?!

To get around this , I am assuming there must be some reasonable profit that needs to be made by the LLC in order to not be self-dealing AND this profit is obligated to pay the self-employment tax.

NOW, in this case, when you zero out the profit, isn't this self-dealing? AT the very worst, this smells like an unlicensed RE Brokerage as the full rent is paid directly to the landlord by a supposedly unrelated entity. Only a Licensed RE Broker can find a tenant for a Landlord, at least in the State of NY.Why even go through this route when the sub-tenant is really the tenant?!

Personally, I don't even see how this protects the Landlord in a liability case since the sub-tenant will sue not only the LLC who is the Landlord but also the building owners.

What a can of worms on a legal aspect! I think it would really be better to put your property into an LLC than to go this route.

Even then, if you just hold the property in your name and put the best Landlord Insurance policy for the assumed liability, won't this just be the best route?

Like @Mary M. my vacancy rate in Brooklyn, NYC, is effectively ZERO.

I have been owning rentals for 21 years, currently have almost 30 apts with about 70 tenants.

I estimate that I probably lost around 5 months of actual rent in all of these years.

The vacancy rates are so low, it is SUB-4%.

Normally, I will get a 45 day notice from the tenant leaving. It takes less than 2 weeks to find a qualified tenant and process them through a rigorous tenant screening process.

Even in situations where there will be some re-painting and some renovations, the tenants are just happy to find a secure, good apt in a safe and trendy neighborhood.

When I build my Business Plans, Vacancy cost is projected to be ZERO in my investment localities.

If a friend or relative invests in a different location, then I look at the asking rent versus the Fair Market Rent (FMR).

If the asking Rent is approximately the same as the FMR, then, depending on the vacancy rate of the target area, I would estimate 1 month vacancy allowance.

IF the asking Rent is significantly below the FMR in a highly dense locality, then there is no point on adding a vacancy of any significant value.

I once had an apt with a FMR of $3k per month. I mistakenly put $2k on my ads.

Within HOURS, I got so many calls, emails and texts, I knew something was wrong! I corrected the Ad and had about 100 responses for the typo ad.

It really should be obvious that Vacancy is dependent on 3 factors, 1) the Asking Rent versus the FMR ,2) How dense is your rental Market and 3) What is the current vacancy rate in your target area.

If you build your Business Plan with these details, you will be surprised how accurate they can be.

@Account Closed

I want to also point out something that really bothers me about Cash on Cash Return.

Again, let's take an example:

1) Purchase Price: $1 Million

2) Investment: $230k

3) Cash Flow per Year: $23k

4) Cash on Cash Return: 10% (23k / 230k)

What bothers me about the Cash on Cash Return is that the Investor that uses this calculation doesn't really understand that HE ASSUMES THIS CoCR Ratio to be the SAME FOR THE ENTIRE HOLDING PERIOD.

BUT, if he did an IRR given the SAME FACTS, he gets this IRR Spreadsheet:

NOTE: The Mortgage is an Interest Only $800k at 6.3%. There is also a small amount of added FMV to account for the fact that CoCR DO NOT TAKE INTO ACCOUNT Closing Costs on the SELL SIDE.

The above Spreadsheet is the IRR Equivalent of a CoCR. It tells you a LOT. It tells you that you assumed that the next 15 years of your holding period, that your CASH FLOW NEVER CHANGES.

IF someone gave me this IRR Spreadsheet, I would just walk away from them because it's total B.S. There is NO SUCH THING as an Investment (other than a Zero Coupon Bond) that pays out EXACTLY the SAME Cash Flow EVERY SINGLE YEAR. Not only that, it DOES NOT TAKE INTO ACCOUNT THE Closing Costs when you SELL the Investment. Don't you think something is wrong with that at the very least?

I think when you really understand IRR and do it for every investment, you begin to understand what it actually means and then you gain a VISION of the future of your Investment, which is what every Investor needs to do.

If a Student gave me this IRR Spreadsheet, I would then tell him to at LEAST build the spreadsheet to ASSUME a 2.5% Increase in Rent Annually AND a 5% Increase of Expenses Annually.

Now the same IRR Spreadsheet looks like this:

The Purple Columns are new and your Cash Flows need to change.

Do you see how easy this stuff really is and how you can take into account REAL WORLD examples of what is going on?

Funny how the Virtual Reality is the CoCR calculation and the REALITY Calculation is actually the IRR!

I would say that if you are buying a $50k property... ok... I'll give it to you that it's such a small investment that MAYBE you shouldn't use the IRR because it "SEEMs" too much for so little.

BUT PLEASE.... by the time you get to a larger Investment, say $100k or more... ESPECIALLY in the Millions.... you MUST do an IRR and take EVERY Future Cash Flow into Account.

I know that some readers will just be biased against the IRR, they will still be the horse that I bring to the Water but just refuse to drink.

I say that if you are serious about expanding your portfolio, becoming that multi-millionaire (or billionaire), then do it from the very smallest to the largest investment as you grow.

Caleb, if you are having difficulty with my posts and these spreadsheets above, you are welcome to go to your friend who understands the importance of the IRR. Ask him to read through my posts and then explain it. If he needs my help, just send me a private message and I can help out.

I hope the Readers of this Post who has made a New Years Resolution to increase their knowledge of Investing, Real Estate or otherwise, take notice that this will be an exceptional tool for you once you understand it.

@Joe Villeneuve

You are mistaken to suggest that I have said that the $945k is a "Profit." It's not... it's a SALES PROCEED and that is EXACTLY as it is in the spreadsheet.

The IRR takes in those inputs and gives you an output.

The Expenses of $1,880, which is $1,880 x 12 months = $22,560 of Annual expenses which is why the cash flow breaks even. I made this to be the amount of expenses for the building including all the normal expenses.

BTW, I make $MILLIONs with these calculations.... ALL REAL.

Personally, it doesn't matter what you and I think. I can demo IRR until my fingers drop and there will still be people making their counter arguments, whether or not it is true or relevant.

Part of that is that the reader's understanding and interpretation of these spreadsheets and the IRR calculation is not fully understood.

BUT again.... that's perfectly fine with me! I put out the calculations, I also have an incredible history of success and the amount of REAL profits are measured by more than $10 Million.

I would say 90% of those who are biased against these future calculations will just continue with their bias. Works for ME! I'm just trying to help with this understanding of IRR, a calculations that again, as the OP suggested, is taught in Finance classes and used by the Pros.

BUT.... if you don't want to use it, you don't have to!

I can bring a Horse to Water but I can't force him to drink! :)

@Account Closed

Thanks Mary for the Mention.

Joe, Caleb, I REALLY want you to look at this Spreadsheet so you can understand that IRR is REALITY AND it is ENTIRELY PREDICTABLE in VERY CERTAIN ways.

Here is the example:

Let's say you are going to buy a multi-family property with the following assumptions:

1) ZERO Appreciation

2) ZERO Cash Flow

3) Purchase Price: $1 Million

4) 20% Down, 15 Year Mortgage

On a CoCR Basis, this property SUCKS and the CoCR Investor will stay COMPLETELY Away from it.

BUT.. when you model it with an IRR, it looks like this:

NOTE: Both the Closing Costs on the Purchase AND the Sale has been accounted for.

CLEARLY, this property will be doing well as you are using a 15 year Mortgage and still breaking even in Cash flow throughout the 15 year holding period.

This is REAL... why?! Because an AMORTIZED FIXED RATE MORTGAGE goes away in 15 years. It is JUST MATH.

The CoCR does NOT take into account any of these future events, NO MATTER HOW CERTAIN THE OUTCOME will be.

In this case, the ending of the Mortgage is CERTAIN and is the only variable worth taking into account in this model.

There is NO Appreciation, NO Cash Flow, JUST the Mortgage.

This Property STILL returns 10% IRR which is a 10% Annualized Compounded Return on your Investment.

Those who do only a CoCR miss these things and cannot take into account ALL future Cash Flows.

BUT HEY.... Caleb's friend is absolutely correct. THESE Future Value calculations are the MOST IMPORTANT numbers PROFESSIONALS who have studied Finance, Investments, Stock Markets, etc. uses.

If the Pros use them, I would suggest we all use them as well.

Why would you do otherwise?

The fact is that the multitude of Investors don't study enough finance calculations to understand IRR or any of the Future Value formulas. That's all great for me! It eliminates the competition!

No doubt in my mind @Jay Hinrichs is the overall the most knowledgeable and experienced commentator. 

Given all of that, he shares his precious time by posting here!

Among all of the talented individuals which I actually don't want to name specifically because there are too many to name, this is what makes BP a great place!

@Dan H.

Thanks for the mention as well Dan!

Really, the best rewards is that people on here have an open mind in regards to what I consider a really great strategy in Analyzing Investments that includes every kind of analysis including Appreciation, and may have actually READ my postings! haha!

Too often I read posts where it explicitly states that Appreciation is a gamble. Hence, it becomes my pet project to give a counter-argument, backed up with success and experience.

This thread started Eight years ago... hmmm.. that's right after the Great Recession Crash of 2008! That really was a different world back then!